Letter of intent (LOI)

The letter of intent, or LOI (lettre d’intention in French), is the document in which a buyer confirms its interest in an asset and the terms on which it intends to acquire it. It comes after the buyer has read the information memorandum, visited the hotel and had initial data room access, and before confirmatory due diligence and the signing of the sale and purchase agreement.

In a transaction

A usable LOI states at least:

• the identity of the buyer, its shareholders and its ultimate beneficial owners
• the proposed price and perimeter (property, business or shares), with the price mechanism where shares are involved
• the financing plan, equity and debt, with a bank letter where relevant
• verifiable proof of funds
• the conditions precedent requested and the audits planned
• the timetable to completion and the length of exclusivity sought

These items let the vendor compare offers on a like-for-like basis. They also allow the vendor’s adviser to carry out, before any buyer is selected, the identity checks required under anti-money-laundering rules.

Legal effect

Under French law, an LOI is in principle not binding as to the deal itself: it is neither a promise to buy nor a sale. Some clauses, however, are drafted to bind the parties, such as exclusivity and confidentiality. A very detailed document accepted without reservation may nonetheless be treated as a commitment. The effect of each clause should be checked with a lawyer before signing.

Not to be confused with

• A firm offer, which binds its author as soon as it is accepted.
• The sale and purchase agreement, which sets the final terms of the deal.

Our sale process shows when letters of intent are expected.